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supported by the admitted part of Exhibit 17-J, which indicated
that Mr. Menard’s compensation and his 5-percent bonus generally
increased each year from TYE January 31, 1991, through January
31, 1998.
Because petitioners have failed to demonstrate (1) that
compensation information for taxable years ended before January
31, 1991, is relevant and (2) that we relied on the unadmitted
portion of Exhibit 17-J contrary to our ruling, we reject
petitioners’ arguments with respect to Exhibit 17-J.
II. Bad Faith
Petitioners’ argument that Exacto Spring Corp. imposes a
“bad faith” requirement for determining whether compensation is a
disguised dividend is derived entirely from a single statement in
that opinion:
The fact that * * * [the president/shareholder’s salary
at issue] was approved by the other owners of the
corporation, who had no incentive to disguise a
dividend as salary, goes far to rebut any inference of
bad faith here, which in any event the Tax Court did
not draw and the government does not ask us to draw.
Exacto Spring Corp. v. Commissioner, 196 F.3d at 839.
Petitioners conclude from the above-quoted statement that the
Court of Appeals for the Seventh Circuit rejected the multifactor
test for both prongs of the section 162 compensation test and
that the Court of Appeals now requires a showing of bad faith
before we can conclude that compensation was not paid purely for
services.
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